The foreign net bond sell-off since the beginning of the year totals 155.50 billion as of October 5, according to the Thai Bond Market Association (ThaiBMA).

It blames the outflows on external factors, followed by domestic supply factors.

The 10-year Thai bond yield could touch 3.50%, according to market predictions.

From August 1 to October 5 this year, foreign investors sold Thai bonds worth 93.63 billion baht.

The net-sell figures for August, September, and October were 55.26 billion, 33.36 billion, and 5.35 billion baht, respectively.

The 10-year government bond yield rate on October 5 rose to 3.367%, the highest in nine years.

The Thai bond yield curve has risen across the first three quarters of this year, with spikes in short-term bond yields driven by the Bank of Thailand’s five policy rate hikes in 2023.

Additionally, the announcement of the government’s bond issuance plan for fiscal year 2024, which increased by 160 billion baht from the previous fiscal year, combined with the government’s stimulus policies, led to a rapid upward adjustment in bond yields in September.

The two-year Thai bond yield increased by 90 basis points (bps) from the end of the previous year, standing at 2.54%, while the 10-year bond yield increased by 54bps, reaching 3.18% as of the third quarter of this year.

The rise in bond yield was driven by foreign selling pressure and external factors, the ThaiBMA said.

Somjin Sornpaisal, ThaiBMA managing director, said the main factors behind the outflows and bond-yield rise were supply-demand dynamics and investor flight to markets with higher returns.

He pointed to the significant yield gap between the United States and Thailand, also commenting that if Thai supply increases without a proportional increase in demand, yields naturally have to rise.

As of October 5, the yield for US 10-year government bonds stood at 4.73%.

Also expected to have an impact on the market is the addition of India to JP Morgan’s bond index, which has reduced Thailand’s proportion in the index to around 9.9%.

The market forecasts fund flows, interest rates, and Thai bond yields will rise in the fourth quarter, said Somjin. He cited a September 19 survey in which 85% of respondents expected the Bank of Thailand’s monetary policy committee to maintain the policy rate at 2.50% in its final meeting of the year this November.

For 10-year bond yields in the fourth quarter, respondents predicted a rise to 3.29% (3-3.50%), based on the direction of US policy rates and Thailand’s supply-demand dynamics.

Continuous outflows from Thai debt securities were a possibility for the remainder of the year if the US-Thai yield gap and current Thai supply-demand dynamics persist, Somjin added.

Meanwhile, the maturing of 80 billion baht in Thai government short-term bonds at the end of this year could spark increased outflows, the ThaiBMA said.

However, foreign capital could also flow back due to factors such as the Federal Reserve halting interest rate hikes, it added.